This Christmas You May Be Visited by 3 Tax Ghosts

Taxpayers could be haunted by three ghosts this Christmas if they don’t keep their affairs up to date, say leading tax and advisory firm Blick Rothenberg.

Stefanie Tremain, a partner at the firm, said: “While most of us start to wind down for the Christmas break, tax advisers will still be working hard in the run up to the holidays (not unlike a certain Mr Cratchit) ahead of the tax return filing deadline on 31 January. And just like in a Christmas Carol, at this time of year, it’s helpful for taxpayers to look backwards, forwards and to what is going on right now.”

She added: “The tax ghost of Christmas past would encourage you to look back and remember that the tax bill you’re paying in January is based on your income and gains for the year to 5 April 2022. It’s easy to forget that in the current UK system, you can, in some circumstances, be paying tax on income and gains arising 21 months before the tax is payable. This can be a shock if your tax return is based on a particularly good year, so try and give yourself plenty of time to work out your liability before the payment date.”

Stefanie said: “The tax ghost of Christmas present would, firstly, remind you that your tax return is due at the end of January. According to HMRC figures, 2,828 returns were filed on Christmas Day in 2021, so taxpayers saying, “Bah Humbug” and sitting down to file their tax return on the 25th will not be alone.”

“The ghost would also remind you that if your tax bill is below £3,000 and you have income taxed under PAYE, if you file your tax return online by 30th December, you can ask HMRC to collect the tax owed through your PAYE code for 2023–2024, which could help with your Christmas cash flow.

“And if you are filled with the spirit of the season and feeling charitable, you could make a Gift Aid donation now (in the 2022–2023 tax year) before you submit your tax return and carry the relief back to 2021–2022.”

Stefanie said: “Then we have the third ghost, the ghost of Christmas future. Nowadays, it’s virtually impossible to look forward with much certainty, but we know now that tax rates are changing from 6th April 2023. The additional rate band is reduced from £150,000 to £125,140, and the capital gains exemption is reduced to £6,000.”

“The ghost can’t give investment advice, but there may be some steps that could be taken before 5th April 2023, such as selling any assets this year to make use of the higher CGT exemption or perhaps considering whether the tax saving could be higher for pension contributions made after 5th April.”

She added: “For anyone within the payments on account regime, don’t forget that these payments assume your income will be at the same level for 2022–2023, so look forward. If your taxable income is lower than in 2021–2022, a claim can be made to reduce the accounts’ payments so that they accurately reflect your expected final tax liability. But be warned, if the payments are reduced by too much, interest will be charged on the difference, so it’s important to be as accurate as possible when making a reduction.”